Loans to directors and staff

If a company makes loans to its employees (including directors) there may be tax consequences. The same may also apply to loans extended to their family members.

For example, the employer will have an obligation to report a beneficial loan to HMRC (and pay Class 1A NIC) and the deemed benefit would be a taxable benefit in kind for the relevant employee.

A beneficial loan is one that is interest free or the rate charged is below the “official rate” and the benefit is the difference between these interest rate charges.

Fortunately, not all loans create a tax problem, certain loans are exempt from this reporting obligation. These could include loans employers provided:

  • in the normal course of a domestic or family relationship as an individual (not as a company you control, even if you are the sole owner and employee),
  • with a combined outstanding balance due from an employee of less than £10,000 throughout the whole tax year,
  • to an employee for a fixed and never changing period, and at a fixed and constant rate that was equal to or higher than HMRC’s official interest rate when the loan was taken out – the current rate is 2.5%,
  • under identical terms and conditions as those provided to the public (this mostly applies to commercial lenders),
  • that are ‘qualifying loans’, meaning all the interest charged to the loan account qualifies for tax relief.

Loans written off will also create a National Insurance Class 1 charge for the employee. They must be reported on a P11D and the employer has an obligation to deduct and pay Class 1 NIC, from the employee’s salary, on the amount written off for tax purposes.

And finally, loans by a company to its directors or shareholders may create additional corporation tax charges.

If you are contemplating loans to employees (or director/shareholders) or have current loans outstanding can we suggest that we undertake a review to ensure any tax consequences are minimised.

Don’t fall for this scam

The Insolvency Service has issued a warning that fraudsters have been contacting investors in insolvent schemes claiming to be from the Official Receiver’s office or to have been appointed by the Official Receiver to help recover funds for a fee.

These approaches are always fraudulent.

Official Receivers or any agent legitimately instructed to act on their behalf will never ask you to pay a fee to get some or all of your investment back.

The Official Receiver can only make a return to you as a creditor in failed schemes if it is possible to identify and sell any remaining assets owned by the liquidated company you bought your investment from. All too often businesses of this nature have few if any, assets left to repay creditors and it can take several years to undertake complex asset recovery work and complete a liquidation.

Paying a fee will not make you a priority creditor, meaning you get paid faster or increase the chance of you getting any money back.

If you are asked to pay a fee to get your money back someone is attempting to scam you.

The Official Receiver does not charge investors a fee to get money back and does not employ anyone else to do this on their behalf.

You should report all fraudulent contact from individuals, stating they can get your lost investments back for a fee, to the Official Receivers. You can also report these approaches to Action Fraud.

Pay-back to save tax

At first sight, company car drivers whose private fuel costs are met by their employers may seem to be onto a good thing, but there is a nasty tax hit…

Enter, the Car Fuel Benefit charge.

Let’s say the following circumstances apply:

  • list price of your car when new was £30,000
  • your employer pays for all your private fuel
  • CO2 emissions are 147 g/km, and
  • the car has a diesel engine, 2000 cc.

The 2019-20 benefit in kind charge for the use of the car (this is added to your taxable income for the year) is £9,900. This would cost a standard rate taxpayer £165 a month in Income Tax.

But then the provision of private fuel would trigger an additional Car Fuel Benefit charge of £7,953. This would cost a standard rate taxpayer an extra £133 a month.

As the title of this article suggests it is possible to reimburse your employer for private fuel provided and avoid this Car Fuel Benefit charge completely. Here’s what you would need to do:

  • First of all, calculate your private mileage for the 2019-20 tax year. Estimates won’t do, you will need to create evidence, a mileage log for example.
  • Multiply this private mileage by HMRC’s Advisory Fuel Rate. The present rate per mile for a 2000 cc diesel car is 11p.

Armed with this information you can now do the sums. In the above example, if the driver’s private mileage was 5,000 miles during 2019-20, the amount that needs to be repaid to the employer is £550. That’s just £46 per month.

Which means, for an effective outlay of £550, the car driver – if a basic rate tax payer – will save £1,593 in tax (£7,953 x 20%). That’s an overall cash saving of £1,043.

If you are receiving private fuel from your employer, or indeed providing private fuel for your employees, it is well worth crunching the numbers to see if there is a cash advantage to repaying any private fuel.

There are deadlines to consider and we can help you with the math and the reporting processes required.

Final planning note for employers

The Car Fuel Benefit Charge not only creates a tax charge for the employee, it also creates a National Insurance charge for the employer. And so, allowing employees to repay their private fuel costs will also reduce your NIC costs. A classic win-win outcome.

Current Advisory Fuel Rates

To assist with your calculations, see previous article, we have reproduced below the current, HMRC Advisory Fuel Rates. They are:

These rates apply from 1 December 2019.

Engine sizePetrol – amount per mileLPG – amount per mile
1400cc or less12 pence8 pence
1401cc to 2000cc14 pence9 pence
Over 2000cc21 pence14 pence
Engine sizeDiesel – amount per mile
1600cc or less9 pence
1601cc to 2000cc11 pence
Over 2000cc14 pence

Hybrid cars are treated as either petrol or diesel cars for this purpose.

Advisory Electricity Rate

The Advisory Electricity Rate for fully electric cars is 4 pence per mile. Electricity is not a fuel for car fuel benefit purposes.

Tax Diary February/March 2020

1 February 2020 – Due date for Corporation Tax payable for the year ended 30 April 2019.

19 February 2020 – PAYE and NIC deductions due for month ended 5 February 2020. (If you pay your tax electronically the due date is 22 February 2020)

19 February 2020 – Filing deadline for the CIS300 monthly return for the month ended 5 February 2020.

19 February 2020 – CIS tax deducted for the month ended 5 February 2020 is payable by today.

1 March 2020 – Due date for Corporation Tax due for the year ended 31 May 2019.

2 March 2020 – Self assessment tax for 2019/19 paid after this date will incur a 5% surcharge.

19 March 2020 – PAYE and NIC deductions due for month ended 5 March 2020. (If you pay your tax electronically the due date is 22 March 2020)

19 March 2020 – Filing deadline for the CIS300 monthly return for the month ended 5 March 2020.

19 March 2020 – CIS tax deducted for the month ended 5 March 2020 is payable by today.

Trivia Networking Event

Image result for Networking

Connect, Inspire, Collaborate

Open to all, you have the opportunity to connect with fellow professionals, discover new relationships, participate in a general trivia game, free raffle or simply enjoy pure networking.

Judy Parsons ‘LinkedIn Lady’ will be in attendance and sharing some tips with you.

Try your hand in the raffle with a difference – the prize?  The whole room to yourself for 2 minutes – hone that elevator pitch, and share your business with us.

Event Date: Wednesday, April 22nd 2020
Event Time: 10am -12.30pm
Event Location: York Marriott Hotel, Tadcaster Road, YORK YO24 1QQ
Booking Details: Contact Anne Ma’aye via email or telephone
Cost: to include light refreshments £15

How to pay: Please send bank transfers to Network York 45702446 60-60-05

Attendees include current members of Network York which include professionals in the following sectors.

  • Commercial Litigation
  • Accounting
  • Investment
  • Wealth Management
  • Residential and Commercial Lending
  • Company Commercial Law
  • Human Resources
  • Mortgage services
  • Brand & Design
  • Telecom services
  • Chartered Architects & Historic Building Consultants.
  • Bespoke & Eco Builders
  • Professional facial aesthetics
  • Education Health & Social Care
  • Niche Tours promoting artisan local drinks industry
  • Business and Personal Protection
  • Commercial and Advertising photography
  • Utilities

Who are Network York ?

Network York is a grouping of professional people working together and with each other to help promote their business both big and small.

We have a wonderful grouping of people from many different professions and businesses.

We meet monthly, share ideas, and interact with each other for everyone’s mutual benefit.

We are celebrating our 14th anniversary and we are expanding, we won’t be getting too big as the close-knit nature of our grouping is part of our every success.

Off-Payroll working arrangements from April 2020

Changes will come into effect in April mainly affecting those working through their own Limited Company who are working for only/mainly one client/end user and where the employment status would indicate that of an employee.

The main change is that the end user/client is responsible for determining the status using the HMRC Check Employment Status for Tax (CEST) and if you are determined to be an ‘employee’ for tax purposes then you will be caught by the Off-Payroll arrangements.

The rules will apply where your client/end user meets 2 or more of the following conditions:

  • Annual turnover of more than £10.2 million
  • Balance sheet total of more than £5.1 million
  • More than 50 employees  

Small businesses (i.e the size of your customer/end user) will continue under the existing IR35 rules.

This will have a financial impact on your available income.

If you think you may be affected by the new rules and want to know how this will impact you then please contact us to discuss further.

https://www.gov.uk/guidance/april-2020-changes-to-off-payroll-working-for-clients

What now?

Even though many of the uncertainties that have plagued UK politics during 2019 are still to be decided, at least the hiatus in parliament has been resolved; the Conservatives now have a working majority and we can expect action on a number of fronts.

Brexit

Business readers with any sort of trading platform with the EU need to consider their options as the EU withdrawal agreement is likely to be ratified by 31 January 2020. At a minimum, EU traders should complete their Brexit impact assessments and take steps to mitigate any apparent risks identified.

Please call if you would like our help with this process.

When will the 2020 Budget be announced?

The new government will probably concentrate on the EU withdrawal process during January and it is unlikely Budget announcements will be in evidence before February.

Budget issues do need to receive fairly urgent attention as there are a number of Income Tax reliefs that are still to be determined for 2020-21.

As details emerge we will be publishing our usual Budget round-up and advising clients of any new opportunities to trim their tax bills and take advantage of any new opportunities revealed.

In Business? Add these to your new year resolutions

The end of the calendar year is a popular accounting date for many businesses, but for those of us with a year-end accounting date of 31 March 2020, reviewing your management accounts for the nine months to the end of December 2019 is a must-do. Please use the following notes as a check list when you undertake this review:

  • If you are self-employed and for the nine months you are predicting lower profits for 2019-20 (compared to 2018-19) it may be possible to reduce your self-assessment payment on account due at the end of January. Contact us so we can file an appropriate election.
  • If you are self-employed and your profits are predicted to be higher for 2019-20, then you may have underpaid your self-assessment tax for 2019-20. Again, contact us so we can estimate this possible underpayment and work out a realistic savings plan to accumulate the necessary funds to meet this additional tax charge when it becomes due 31 January 2021.
  • Use the nine months figures to update your financial budgets for 2020-21. We recommend that all businesses undertake this task as it will identify high points and low points in your cash flow and solvency. Please call if you need help with this task. If you have never created a budget before we can help you crunch the necessary numbers.

Needless to say, if you are concerned by the historical results to 31 December 2019 or the outlook for 2020-21, let’s get together and see how best to meet these challenges. With the external pressures that Brexit may pose for your business this is not a time for wishful thinking. Be prepared.

Spousal CGT tax advantages

It is fairly common knowledge that the UK tax system is biased in favour of married couples or those partners who have entered into a formal civil partnership.

Note that from 2 December 2019, the Civil Partnership (Opposite Sex Couples) Regulations 2019 came into effect in England and Wales allowing opposite sex couples to enter into a Civil Partnership for the first time.

Transfers of chargeable assets for CGT purposes are exempt between spouses and civil partners. Also, the annual exemption is available to both parties. This combination means that couples may be able to share the gain on a disposal of assets and reduce their overall CGT charge.

This strategy, of transferring partial ownership to a spouse (or civil partner), can also reduce an overall CGT charge if the transferring partner/spouse is due to pay CGT at the higher 20% or 28% rate (as their gains fall to be taxed in the higher rate tax band) and the receiving partner/spouse would only be liable to pay CGT at the lower 10% or 18% (as their share of a transferred gain would fall into their free basic rate band).

The 10% and 20% rates have applied from April 2016, but do not apply to disposals of residential property or carried interest – for these latter items, disposals are taxed at 18% to 28%, dependent on where the gains sit in the basic or higher rates bands.

And don’t forget, CGT is assessed and payable as part of your self-assessment. Any tax payable for 2019-20 will be due for payment 31 January 2021. On the same day you will also have to pay any other underpayment of Income Tax for 2019-20 and your first payment on account for 2020-21.

Also, please note that from 6 April 2020, any CGT due on the sale of a residential property by a UK resident will need to be reported and paid within 30 days of the completion of the sale transaction.

If you own assets that are subject to CGT on disposal and you, and possibly your spouse, are struggling to fully utilise your CGT annual exemption, or you would like to discuss ways to minimise any CGT payable, please call to discuss your options.